How the new GOP Congress exposed the absurdity of our budget debates
Is America headed for a debt crisis? Depends on how you look at it.
House Republicans raised a number of eyebrows with an under-the-radar change to Social Security and disability insurance this week.
Social Security proper — also called Old-Age and Survivors Insurance (OASI) — and Disability Insurance (DI) both exist under the umbrella of the Social Security program, and both are funded by payroll taxes. Both programs also have trust funds, to cover years when the incoming cash from taxes does not equal the benefits the programs pay out. Congress has shifted resources between the two funds at least 11 times in the past.
What the GOP did was alter the rules, so that any future shift can only be done if accompanied by a policy change that "improves the overall financial health of the combined Social Security Trust Funds."
That's a big deal. The DI trust fund is set to run out in 2016, after which benefits will have to be cut dramatically to bring them in line with DI's annual tax revenue. Critics pounced on the move for a host of meritorious reasons: extending DI's solvency to 2033 would cost OASI almost nothing; the GOP has incorrectly accused DI of promoting shiftlessness for a while now; and this rule change is an obvious hostage-taking strategy to force cuts or other "reforms."
But there's also a deeper critique to be made: the skirmish highlights the inherent bizarreness of trust fund accounting, and undermines one of the American right's most cherished narratives about debt spending.
The fact is that the trust funds for OASI and DI are not actually "trust funds" in the way an average American would think of them. The federal government can't just go open a savings count with Bank of America or a money market fund with Vanguard. Instead, the trust funds are filled with a special kind of Treasury instrument that can only be cashed out by the federal government. They do earn interest, but that's it. So while an OASI or DI security may be created when the future beneficiary forks over her payroll tax, the revenue from that taxation still has to be spent right then. And when the security is eventually cashed out to pay that taxpayer her benefits, it has to be cashed out with money coming into the government right then — either through taxation, or through borrowing.
The trust funds are a set of promises by the federal government to pay Americans the benefits they qualify for with future spending or borrowing. Those promises scale back when the trust funds run out, and annual payroll tax revenue is all that's left.
But the government has also made another set of promises to Americans: the headline benefits that Social Security, disability, and and other entitlements are expected to pay out to every qualifying American, in perpetuity.
Those two sets of promises are mutually exclusive: if the government honors the first set, benefits reduce as the trust funds deplete. If the government honors the second set, the trust funds might as well not exist. The conflict between these two sets of promises is the essence of the trust fund shortfall problem.
But here's the gag: to project future government spending, the Congressional Budget Office (CBO) has to make an assumption about which set of promises Congress will honor. By definition, it cannot honor both. And for a while now, CBO has assumed the second set of promises will hold: that Congress will just ignore the depletion of the trust funds and keep paying the benefits.
That's significant, because CBO's projections are the basis for the dominant budget narrative Republicans have been pushing for at least six years: that the country is headed for a debt crisis.
But if you assume that Congress will honor the first set of promises, the debt crisis disappears. Back in 2012, the Committee for a Responsible Federal Budget actually ran the numbers on what would happen if Congress honored the depletion of the trust funds for OASI, DI, and several other programs that function similarly. It found that U.S. debt would drop to zero shortly after 2050.
Congress bothers reallocating between the OASI and DI trust funds only because it is assumes the depletion of the trust funds will actually mean something. But by proclaiming there is a debt crisis, Republicans and debt hawks are implicitly declaring that the depletion won't mean anything. They're assuming the trust fund shortfall will be solved by massive government borrowing. Conversely, if there is a trust fund crisis, there is no long-term debt crisis.
This point will likely be cold comfort to Social Security and disability insurance advocates. The law as written calls for benefits to be slashed as the trust funds deplete, and re-writing the law so that things play out as CBO assumes they would require a willing congressional majority.
Still, the fact is that the debt crisis narrative and the trust fund crisis narrative cannot both exist side by side, for politicians to invoke willy-nilly. One of them must go.